Despite decline in valuation of Ulips, investor outlook positive

New Delhi: Valuations of unit-linked insurance plans, or Ulips, a popular investment vehicle, have suffered in the recent markets downturn too, but most schemes have managed to avoid the nearly 30% slide in the Bombay Stock Exchange’s Sensex since 10 January.

An analysis of nine growth Ulips, or those that invest in stock markets, reveals that the average decline was about 20% over the same period.

Ulips are insurance plans the premium of which is invested in the stock markets. If the individual outlives the policy, then he or she stands to net the then value of these stock market investments.

Fund managers and investors say they are not alarmed by the double-digit decline since they believe such volatility only affects short-term investors.

“Compared to the Sensex, insurance plans have performed better because Ulips are driven by long-term valuations than momentum stocks,” said Sashi Krishnan, chief investment officer, Bajaj Allianz Life Insurance Co. Ltd.

The net asset value, or the per share market value, of Bajaj Allianz New Unit Gain Plus slid by 25.70% in the same period.

Arguing similarly, Anil Sahgal, director, strategy, and chief investment officer of Aviva Life Insurance Co. India Ltd, said: “Investors should not be concerned by the short-term volatility in the markets. Moreover, the insurance companies constantly get inflows and hardly get any redemptions and, hence, are able to invest in such volatile times and at attractive valuations.”

Investors such as Atul Bhatnagar, New Delhi-based associate human resources director of Radisson Hospitality Worldwide, has seen the value of Ulips, purchased three years ago, drop by 16% to Rs38,000.

Bhatnagar is, however, more concerned at the loss of valuation of his mutual fund investments—undertaken with a short-term outlook. “Even though my unit-linked plan is down by 16%, it still has performed better than mutual funds. I am not worried for my Ulip because I bought the plan with a long-term view.”

According to data put out by the Insurance Regulatory and Development Authority, or Irda, there’s been no slowing in investor interest as yet in Ulips. While Irda only releases data for all insurance schemes, Ulips account for 80% of the premium received.

At the end of January, the latest period for which data is available, premium payments rose by 106.49% to Rs9,551 crore—an acceleration from the growth of 84.81% to Rs8,880 crore in December.